Creator: Perri, Fabrizio and Quadrini, Vincenzo Series: Great depressions of the twentieth century Abstract:
We analyze the Italian economy in the interwar years. In Italy, as in many other countries, the years immmediately after 1929 were characterized by a major slowdown in economic activity as non farm output declined almost 12. We argue that the slowdown cannot be explained solely by productivity shocks and that other factors must have contributed to the depth and duration of the the 1929 crisis. We present a model in which trade restrictions together with wage rigidities produce a slowdown in economic activity that is consistent with the one observed in the data. The model is also consistent with evidence from sectorial disaggregated data. Our model predicts that trade restrictions can account for about 3/4 of the observed slowdown while wage rigidity (monetary shocks) can account for the remaining fourth.
Keyword: Wage rigidity, Italy, Depressions, and Trade restrictions Subject (JEL): N14 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Europe: 1913- and E32 - Business Fluctuations; Cycles
Creator: Christiano, Lawrence J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 339 Keyword: Inventory investments, Investment, Inventory, and Fluctuations Subject (JEL): G31 - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity and E32 - Business Fluctuations; Cycles
Creator: Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 355 Abstract:
Forecasts are routinely revised, and these revisions are often the subject of informal analysis and discussion. This paper argues 1) that forecast revisions are analyzed because they help forecasters and forecast users to evaluate forecasts and forecasting procedures, and 2) that these analyses can be sharpened by using the forecasting model to systematically express its forecast revision as the sum of components identified with specific data revisions and forecast errors. An algorithm for this purpose is explained and illustrated.
Keyword: Forecasting, Data revisions, Forecast revisions, and Innovation Subject (JEL): E17 - General Aggregative Models: Forecasting and Simulation: Models and Applications
Creator: Greenwood, Jeremy, 1953- and Williamson, Stephen D. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 363 Abstract:
A two country overlapping generations model is constructed, in which financial intermediation arises endogenously as an incentive compatible means of economizing on monitoring costs. Because of international credit markets. The model is used to generate the existence of transaction costs, money markets in the two countries are segmented and investors have differential access to predictions concerning the role of international intermediation in economic development, and to examine the nature of business cycle phenomena across alternative exchange rate regimes. Disturbances are propagated by a credit allocation mechanism, which also lends a novel flavor to the model's long run properties.
Keyword: Generations, Economic models, Business cycles, Financial policy , and Exchange rate Subject (JEL): E32 - Business Fluctuations; Cycles and F41 - Open Economy Macroeconomics
Creator: Chari, V. V., Kehoe, Patrick J., and Prescott, Edward C. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 365 Keyword: Macroeconomics, Choice, Economic policy, Monetary policy, and Decision making Subject (JEL): E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination and D81 - Criteria for Decision-Making under Risk and Uncertainty
Creator: Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 373 Abstract:
This paper presents a simple counterexample to the belief that policy cooperation among benevolent governments is desirable. It also explains circumstances under which such counterexamples are possible and relates them to the literature on time inconsistency.
Keyword: Policy coordination, Macroeconomics, Cooperation, and Policy games Subject (JEL): D46 - Value Theory, F33 - International Monetary Arrangements and Institutions, and F11 - Neoclassical Models of Trade
Creator: Atkeson, Andrew and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 513 Abstract:
In this paper, we build a model of the transition following large-scale economic reforms that predicts both a substantial drop in output and a prolonged pause in physical investment as the initial phase of the optimal transition following the reform. We model reform as a change in policy which induces agents to close existing enterprises using old technologies of production and to open up new enterprises adopting new technologies of production. The central idea of our paper is that it is costly to close old enterprises and open new enterprises because, in doing so, information capital built up about old enterprises is lost and time must pass before information capital about new enterprises can be acquired. Thus, an acceleration of the pace of industry evolution leads in the short run to a net loss of information capital, a drop in productivity, a recession, and a fall in physical investment. We calibrate our model of industry evolution, information capital, and transition to match micro data on industry evolution in the United States and macro data from the United States, Japan, and the former communist countries of Europe. We find that the loss of information capital that accompanies a major acceleration in the pace of industry evolution in an economy leads initially to a decade of recession and a five year pause in physical investment before the benefits of reform are realized.
Keyword: Technology change, Information capital, Recession, Technological evolution, Industrial evolution, Economic reform, Policy change, and Transition Subject (JEL): O25 - Industrial Policy and O33 - Technological Change: Choices and Consequences; Diffusion Processes
Creator: Anderson, Paul A. and Supel, Thomas M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 039 Abstract:
This paper puts forward a method for improving the forecasting accuracy of an existing macroeconometric model without changing its policy response characteristics. The procedure is an extension and formalization of the practice of additive adjustments currently used by most forecasters. The method should be of special interest to forecasters who use models built by other investigators because it does not involve reestimation of the original model and uses only information routinely included in the documentation available to model users. The paper ends with a demonstration of the prediction improvement realized by application of this method to a version of the MIT-Penn-SSRC (MPS) model.
Keyword: Prediction, MIT-Penn-SSRC model, Multiperiod forecasting, and MIT-Penn-MPS model Subject (JEL): C52 - Model Evaluation, Validation, and Selection and C53 - Forecasting Models; Simulation Methods